Good day, everyone, and welcome to the Vicor Earnings Results for the Fourth Quarter and the Year ended December 31, 2018, which is hosted by James Sins and Doctor. Patricia Vincherelli. My name is Shelly, and I'm your event manager. During the presentation, your lines will and a coordinator will be happy to assist you. I would like to advise you all the conference is being recorded for training purposes and replay per purposes.
Now I would like to hand the call over to James Dins. Please go ahead.
Thank you, Shelly. Good afternoon, everyone, and welcome to Vicor Corporation's earning call for the fourth quarter year ended December 31, 2018. I'm Jamie Simms, CFO, and here with me in Andover are Patrice I would now like to turn the call over to Mr. Vinciorelli, Chief Executive Officer and thank you for joining us today. Results for the 3 12 month periods ended December 31.
This press release has been posted on the Investor Relations page of our website at w ww.vicorpower.com. We also filed a Form 8 K today related to the issuance of the press release. As always, I remind listeners this conference call is being recorded and is the copyrighted property of Vicor Corporation. I also remind you various remarks we make during this call may constitute forward looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Except for historical information contained in this call, The matters discussed on this call, including any statements regarding current and planned products, current and potential customers, potential market opportunities, expected events and announcements, construction plans, as well as forecast sales growth spending and profitability are forward looking statements involving risks and uncertainties.
In light of these risks and and uncertainties we can offer no assurance forth in or implied by any of our remarks today. The risks and uncertainties we face are discussed in Item 1A of our 20 17 Form 10 K, which was filed with the SEC on March 9, 2018. We will file as required our 2018 Form 10 K by this Friday, March 1, 2019. Please note the information provided during this conference call is accurate only as of today, Tuesday, February 26, 2018, excuse me, 2019. FICOR undertakes no obligation to update any statements, including forward looking statements made during this call, and you should not rely upon such statements after the conclusion of the call.
A replay of the call will be available beginning at midnight tonight through March 13th. The replay dial in number is 8882868010. Followed by the passcode 10,247,812. In addition, a replay, webcast replay of today's call will be available shortly on the Investor Relations page of our website. I will start this afternoon's discussion with a review of our financial performance for the fourth quarter and the full year.
Dick will comment on tax matters and Patricio will follow with his remarks, after which we will take your questions. Beginning with consolidated results, as stated in today's press release, Vicor recorded total revenue for the fourth quarter of $73,700,000, representing a sequential quarterly decline of 5.5% from the $78,000,000 recorded for the 3rd quarter and an increase of 25.4% over revenue recorded for the fourth quarter of 2017. On a full year basis, total revenue for the $291,200,000, 27.8 percent higher than the total revenue for 2017. As other companies have reported, December quarter results fell below expectations due to several factors, most notably weaker demand in China and softness in data center spending. For Vicor, Q4 bookings showed evidence of weakening demand.
4th quarter revenues were influenced by upwards of a $5,000,000 excuse me, $5,000,000 value of shipments rescheduled into 2019. In a moment, Patricio will address booking trends and specific circumstances influencing our outlook. Last quarter, we began providing a breakdown of revenue by advanced and legacy product categories. The Advanced Products category represents the sum of the products of our PICOR and VI Chip operating segments, reflecting proprietary patent advances in power, factorized power distribution, power conversion topologies, control systems, power semiconductors, and advanced power packaging. Legacy products are those associated with our well established brick business unit operating segment, serving a broad range of classic distributed power applications with integrated converter modules, configurable standard product assemblies, and custom solutions.
Going forward, we'll be referring to these products simply as Brick products in our remarks and in our filings. We will continue segments, reflecting intersegment transactions, our financial reporting structure and management oversight, but we believe the Advanced Product And Brick Product Designations net of intercompany intersegment transactions are appropriate for summarizing our progress in implementing serving a highly fragmented and diverse customer base, to a relatively low mix high volume model, serving OEMs and their manufacturing partners, focusing on high growth opportunities with a portfolio of highly differentiated products. For the fourth quarter, advanced product revenue was flat sequentially, rising less than 1% over the third quarter, despite the program delivery rescheduling previously referenced. Advanced product revenue for the fourth quarter of 2018 rose 21.1% from the fourth quarter of 2017. As a percentage of total quarterly revenue, Advanced Products contributed 36.7%, up from 34 point revenue totaled $104,600,000, a 36.8% increase over the total for 2017, and represented 35.9 percent of 2018 total revenue versus 33.6 percent for 2017.
4th quarter revenue for BROOK products declined 5.5% sequentially. But rose 28.1 sales represented 63.3% in contrast to 65.4% for the preceding quarter. For full year 2018, Brick product revenue totaled $186,600,000, a 23.3% increase over the total for 2017 and represented 64.1 percent of 2018 total revenue versus 66.4 for 2017. Quarterly international revenue declined 8.1% sequentially, and represented 60.5% of total revenue. Advanced Products exports rose 6.5% sequentially and represented 46% of exports for the 4th quarter, indications that the stability of our shipments for 48 Volt to point of load program with Asian ODMs and CMs.
Brick products declined 17.8% sequentially, and represented 53.9% of exports for the 4th quarter, down sequentially from 60.3%. Reflecting bookings declines from our Chinese and European distributors, which largely serve industrial customers. Geographically, total revenue for 2018 breaks down as follows. North America represented approximately 38% China, including Hong Kong, represented approximately 37%, Asia Pacific excluding China, represented approximately 13%. Europe and the Middle East represented 9.5% and all other geographies sum to 2%.
Of total revenue. For revenue across 2018, we recorded increases across all geographies, reflecting higher unit volumes and improved pricing. Exports to China of both Advanced Products And Brick Products accelerated early in 2018 and finished the year over year growth of approximately 34%. North American revenue increased approximately 32%, driven by strength in Aerospace And Defense Electronics, balance between Advanced Products And Brick Products. Exports to Asia Pacific, including China, grew approximately 16% cent customer, new power electronic, our largest authorized distributor in China.
For the fourth quarter and the full year, our 5 largest customers, including new power and 2 other distributors, represented 31.3% and 36%, respectively, of total revenue. Recall that we report export volumes on the basis of ship to address. So as such, the 10% customer concept may not provide a complete view of customer concentration. Distributors obviously have many downstream customers with diversified applications. In contrast, an OEM using a relatively small number of our SKUs usually spreads a program's volumes across multiple contract manufacturers and combined shipments for a given program given period may exceed 10% of revenue.
Recorded and shipped within the quarter was approximately 20% of 4th quarterrevenue up from approximately 18% of third quarter revenue. Lower turns volumes throughout 2018 have been a reflection of extended lead times for in the U. S. Government shutdowns in the U. S.
Government shutdowns, the U. S. Government shutdowns However, given improved availability of some raw materials, we have been able to accommodate some customer requests for accelerated delivery, which is a sign of improved supply chain visibility. As mentioned, Patricio will address bookings in his remarks, but I want to emphasize the following: which I've spoken to before. Bookings and shipment patterns can differ sometimes meaningfully for advanced products and Brick products.
Advanced products, bookings and shipments thus far have reflected the low mix, high volume requirements of a concentrated customer base. With individual high volume orders scheduled for delivery over multiple quarters. Design Wins for advanced products can may not be placed for a similar period. To illustrate, a hypothetical OEM program may be planned for a 3 year life before major redesign. Such a program typically involves multiple contract manufacturers, which place orders with us based on the OEM production schedules.
In any year of the program, we might receive relatively few orders, but the orders are high volumes of its demand forecast or by the contract manufacturer based on their factory loading and supply chain visibility. As we seek to expand the number of OEMs and their programs with which are involved, we expect to smooth out this lumpiness of the cycle for Advanced Products. But until then, listeners should consider the relatively large impact of a program change notably shipment rescheduling on our results as we experienced in the fourth quarter. In contrast, Brick products generally are high mix low volume, serving a statistical customer base of nearly 10,000 customers. Competition for design wins is less intense and generally a short length for Brick products given our mass customization manufacturing model which enables us to meet customer requirements that catalog based companies cannot.
Many Brick products have been designed into customer end products for a long time and such customers typically are in relatively stable mature markets with well recognized demand patterns. While a few large customers place program or blanket orders, Brick products generally are Product orders are generally smaller, averaging less than 100 units and scheduled over weeks months contributing to a currently experiencing. For example, in China, where the imposition in September of an additional 10% import tariff on U. S. Manufactured goods made trading conditions challenging, the threat of another round of higher tariffs to be imposed if the current trade negotiations break down, cause customers to postpone orders in the fourth quarter and to date in the 4th the U.
S. Bank of America, the U. S. And the U. S.
And the U. S. And the U. S. Of margin as a percentage of revenue was 45.9%, largely reflecting lower product volumes and inefficiencies caused by shift product mix.
Advanced product volumes were flat with increased VI Chip shipments offset by lower PICOR shipments. Change mix was a contributing factor for both product categories. While our 3rd quarter consolidated gross profit margin rose to 50%, stable mix was a strong contributor as was relatively high volume. For the fourth quarter, manufacturing performed well under difficult conditions of changing demand and we remain confident of the scalability of our business model. Also during the quarter, we were successful in meeting our needs for raw material inventories as vendor lead times shortened.
Section 301 tariffs on our Chinese import did not have a material impact we source from China. When possible, we are seeking alternate non Chinese vendors. As indicate last quarter, we filed requests with the U. S. Government for exclusions from tariffs on a limited number of components for which no alternate vendor exists.
However, we have not received any response yet. We continue to monitor the impact of tariffs on the cost of imports from China If this impact becomes meaningful, we may Turning to operating expenses, 4th quarter operating expenses rose 3.2% sequentially. 2018, total OpEx rose 3.4 percent over 2017, in line with our expectations, with customary increases in compensation and outlier increases in audit and legal expenses, offset by a decline in R&D prototyping costs. On a relative basis, Q4 operating expenses reversed percentage of in revenue. Revenue, with the only noteworthy spending variance being another decline in prototyping costs.
Marketing and sales expenses rose 3.1 percent sequentially and from 13.6% to 14.9% of quarterly revenue. With no noteworthy spending variance. G and A expenses rose 2.6 sequentially and from 6 to 6.5 percent of revenue, also with no noteworthy spending variance. Operating income declined sequentially to 9.5 percent of revenue from 16.7 percent for the prior quarter. For the year 2018, operating income was 11.1 percent of revenue, up from a negligible operating loss for 2017.
On an absolute basis, these results are in to decline as a percentage of revenue, while expanding at low single digit percentage rates in absolute terms, largely driven by compensation costs. As stated before, our long term model I'll now turn to Dick for a quick overview
tax rate was 5% and we recorded a net provision of $363,000. For the full year, our effective majority of which consisted of state and foreign tax expense. During prior conference calls, we've explained our perspective and the valuation allowance we maintain against the value of our domestic deferred tax assets. Under the assumptions sequential quarters of improved profitability would allow us to conclude the release of the allowance would be appropriate. While our outlook remains positive for sustained profitability.
The results of the 3rd fourth quarter combined with generally poor near term visibility led us to conclude a release of the valuation allowance, which stood at approximately $30,000,000 as of December 31, 2018, would be premature. As such, pursuant to the requirements of ASC 740, we have left the full valuation allowance in place. We will continue to assess the potential release of the allowance later in 2019. The composition of $1,000,000,000 in the fourth quarter of 2018. For the full year, we and consumed a major portion of its federal NOL balance in 2018, leaving federal and state R and D tax credits along with other not, we will release some portion, if not all, of the valuation allowance later in 2019.
Jamie? Thank you, Dick. Returning to
the P and L, we recorded 4th quarter net income after minority interest of $6,900,000,000, down from the 13 prior year. For 2018, net income, again, after minority interest, totaled $31,700,000, up from an essentially break even for 2017. Diluted EPS for the 4th quarter totaled $0.17, down from the 3rd quarter's $0.32 and up from the $0.04 per share recorded for the fourth quarter of the prior year. Full year diluted EPS was $0.78 in contrast to last year's breakeven figure. Our diluted share counts for EPS calculations were $40,729,000 for the full year EPS.
And $40,981,000 for the 4th quarter EPS. Turning to the balance sheet, cash and cash equivalents sequentially increased $2,400,000 for the 4th quarter ending at $70,600,000. On a year over year basis, cash and cash equivalents increased by $26,300,000, net of significant investments in equipment to expand manufacturing capacity made late in the year. The 4th quarter cash increase reflects operating cash flow of $13,300,000 the third quarter. A positive working capital swing offset the net income decline for the 4th quarter.
Capital expenditures rose to $11,300,000 from the prior quarter's 3,300,000 reflecting the substantial amount of new production equipment installed, as well as certain facilities upgrades. Capital expenditures for 2018 totaled $18,200,000, up from the prior year's $12,500,000. I'll return to capital spending and capacity in a moment. Trade receivables net of reserves totaled $42,800,000, down sequentially 2.6%. And DSOs rose to 44 days from 41 days.
At year end, the trade receivables portfolio was and remains today sound. Inventories, net of reserves, increased 9% sequentially to $47,400,000 largely reflecting rising material and component point 6 times. So concluding my review of the 4th quarter, total employee headcount as of December 31, declined to 1007 from 1018 for the prior quarter, but rose from the December 31, 2017, total headcount of $9.80. Full time headcount was $9.76 at year end. Up to from the prior quarter and up 6 year over year.
I'll now provide an update on our capacity expansion and planned capital expenditures. We have approximately 7,000,000 of production equipment scheduled to be placed in service in the first half of twenty nineteen. Which is expected to complete Completion of this investment will add approximately 35 percent to our chip manufacturing capabilities. We are into the permitting phase of an 85,000 square foot addition to our Andover Manufacturing facility. We plan to break, excuse me, break ground on this addition to our existing plant in 2019 and take occupancy in 2020.
The planned addition of multiple manufacturing lines in this additional space, sequenced across 20202021, is planned to increase our Advanced Products capacity by an additional 100%. We are budgeting roughly $17,000,000 for the construction which will be paid an additional $12,000,000 for 2 phases of production equipment installation, the first beginning at occupancy. The 2nd phase of capital equipment spending will be scheduled 6 months ahead of initial demand for that capacity. Based on these budgets and our outlook for cash generation, we anticipate manufacturing equipment. This sequence approach to capacity expansion is designed to allow us to meet anticipated production scenarios by increasing our total andover capacity to the $750,000,000 revenue level by the end of 2020 while deferring to the extent possible incremental capital commitments and equipment depreciation charges.
We are also exploring with potential licensees establishing an alternate source for advanced products through a separate manufacturing facility outside of the United States. The licenses facility would complement Vicor's initiative to address global demand for 48 Volt Power Systems solutions in both automotive and artificial intelligence applications. Turning to our outlook, Q1 revenue will be lower than Q4, while bookings are expected to increase sequentially with a Q1 book to bill ratio slightly above 1. Bookings are forecast to increase at an accelerating pace as the year progresses with revenues lagging 1 to 2 quarters. We expect to remain profitable and generate operating cash flow.
Having offered this limited guidance, I to unanticipated changes, many of which are caused by With that,
percent sequentially. The bookings for Brick Products declined approximately 15% sequentially, with particular softness in Chinese industrial markets. Geberding uncertainty contributed to reduced expectations from Europe. Until trade matters to resolve, our outlook for both Chinese and European industrial markets is cautious. However, confidence in U.
S. Markets remains relatively firm for both BRIG Products and Advanced Products. Overall bookings for Advanced Products declined sequentially as orders for our power and package solution for high current AI applications did not follow through from the progression of prior quarters. Near term volume expectations for our first GPU power package or pop solution were reset by well publicized forecast revisions from the lead customer for that solution. Bookings for other 48 volt direct to point of load programs were also slower than anticipated in Q4.
Reflecting temporary softness in datacenters spending with new programs scheduled to ramp in the second half of twenty nineteen. We remain confident of the opportunity before us in rapidly developing artificial intelligence supercomputer and datacenter segments. A feverish pace of new program activity is setting the stage for substantial growth in bookings, revenues and profitability. For power package, we have secured major design wins in DI space and in supercomputing, with production ramps expected in 2020. Our engagement with market participants continues to expand as companies developing advanced GPUs TPUs and application specific integrated circuits, specifically artificial intelligence ethics, face fundamental power delivery challenges.
With power delivery standing in the way of performance, Vyger's power package as quickly established itself as the power system solution needed to overcome power conversion and power delivery challenges. Our technology leadership is expanding as competition remains anchored by legacy 12 volt infrastructure. Or variance on the team of a so called intermediate bus architecture known to be fundamentally handicapped after repeated failed attempts are competing with 48 volt factorized power. Recognition of unrivaled technical leadership and enabling product capabilities are motivating broader adoption of Vyger's power package solutions by leading developers of GPUs, TPUs, and every other I current ESIC. Anticipating rising card requirements from 100 of amperes to 1000 of amperes to fuel smarter AI Processors.
Vicor has developed power and package solutions using proprietary vertical power delivery or VPD technology. AI design wins for our performance VPD solutions evidence, vigor's ability through fundamental innovation to keep expanding the company's product leadership. Causing competitors to have to play catch up with inadequate products that they cap more than twice as much space. In applications, where there is no excess space to be had. In space constrained applications, power and package design wins set the stage for complementary front end design wins with liquid cooled that affirms providing a nearly tenfold increase in power density relative to conventional AC to 48 DC front ends, including front ends using ganfests.
Even though ganfests are capable of switching at high frequency. In high voltage power conversion applications, the switching frequency of manifests is limited by losses in power commercial circuitry to less than 1 10th the operating frequency of the As such because of a speed limit imposed on high voltage gunfets, by power conversion circuit from tens using gunfests take up nearly 10 times more space than the airframe. Which is not constrained performance or cost to low voltage applications specifically with the emerging 48 volts standard in automotive applications. In automotive, VICO is gaining significant traction with OEMs and Tier 1 suppliers challenged by electrification, the event of the 48 volt bus, and autonomous driving. Our value proposition includes high power density and modular flexibility.
As recently reported, deployment of the most advanced level 5 autonomous driving system will ramp substantially starting 2020. Based on this and the trajectory of other early engagements, we expect that our growth in the Automotive segment will before too long be comparable to the growth we're now experiencing powering artificial intelligence and service in data centers. Across key growth markets, we are addressing major opportunities and scaling up capacity to support forecast production requirements.
Shelley?
For questions. Questions. Thank you. And your first question comes from the line of Quinn Bolton. Please go ahead.
Hi, Patricia. Hi, Jamie. Jamie, just wanted to start, I guess, first on a couple of business questions. It sounds like you mentioned there were some rescheduling of $5,000,000 of orders from 2018 to sometime in 2019 from, I think, your largest power on package customer Have those rescheduling or have you seen any additional rescheduling quarter to date here in March or has that forecast now stabilized?
I'll let Patricia take it.
So timing will tell whether their vortex has stabilized, but I think our exposure, revenue and backlog perspective is limited and fundamentally tied to the $5,000,000 that is shipping later this quarter.
Okay. So that will actually ship here in Q1.
Q1 and very beginning of Q2, yes.
Okay.
Okay, great. And I know you referenced a couple of times in your prepared comments, the visibility is low. But you did say you thought, bookings and revenue would grow into the second half? I'm trying to understand, are you sort of anticipating that the March quarter would be the bottom or Do you really just not yet have enough visibility to call the bottom of this cycle?
So we expect to see nearly 15% growth in bookings in Q1 and the progression with high bookings levels in Q2, Q3 and ending the year in Q4 near the $100,000,000.
Okay. And revenues, you said typically follows that booking trend by 1 to 2 quarters?
Yes, we'll follow the bookings by nearly two quarters, more than 1 quarter, closer to two quarters.
Okay. Quinn, I also want to take exception with the use of the word cycle, because, what happened, with the rescheduling very specific, to a circumstance. And in general, it's very difficult for anyone to separate the events that are largely categorized as macroeconomic when in fact, it's our point of view, notably in China, that the slowdown is most fundamentally associated with customers waiting for more certainty about, tariffs. So, does that help?
It does. And then just last sort of business question, you've mentioned now on a couple of conference calls. That you source a fair number of components in China and that you're trying to find sources outside of China. Just wondering if you could give us an update on that initiative?
Supply chain in view of a number of considerations, obviously, the dependency, from Chinese suppliers being one of it's not the only one. So we believe that we're well positioned going forward to ensure that We have continued supply and importantly, continued supply at cost competitive levels. Sports are, expanding business model.
Great. And then the last one for me for you, Patricio, just you mentioned the vertical power delivery or the geared MCMs give you the capability now to deliver more than 1000 amps of current. Can you just sort of give us a quick overview? What's what is it about the geared MCMs or vertical power that allow you to get into the 1500 amp or higher range with that technology? Thank you.
So this technology essentially casts by nearly factor of 10, the interconnect resistance between the current multipliers and the XPU being powered by the current multipliers. So in, for instance, the well advertised GPU application, the current multipliers are located on the sides of the GPU there are tens of watts of power loss that take place in the current traveling sideways, you know, from the size of the XPU to the bottom of the XPU. In vertical power delivery, the current multiplier or current multipliers. So we have an application for instance, with 4 current multipliers, the 4 current multipliers reside under the XPU And that allows the car to travel a much shorter distance, to feed the XPU in a much more efficient and uniform way. Now this may sound relatively obvious but in reality, it's quite complex because there are obstacles sending in the way of providing vertical power delivery.
And I'm not going to go into those technicalities, but suffice it to say that, it's not easy to do. It's been viewed as a complex task. We've overcome the fundamental challenges proprietary developments that enable this capability. Now to be clear, lateral power delivery is not coming to a screeching halt. In fact, we have new applications with more advanced GPUs that will take it the 2 as much as 50,021,000 amps, still with lateral power delivery.
But we've also recently won virtually without any effective competition. The 1st, vertical power delivery opportunities were again, the value proposition is one of much more efficient power delivery. 1 were in effect the level of AI capability is not gated by, gating the current, to the XPU.
Thank you. Your next question comes from the line of Matthew Vigno. Please go ahead.
Hello. This is a similar question to Quinn's. In the past, management has mentioned that, robust economy wasn't needed to deliver growth. So my question is, what really leads to confidence that this is mostly tariff related and temporary versus the the potential for a push out of the data center upgrade cycles and and a push out that could potentially, you know, last for a longer period of time. Thank you.
So to be clear, the issue or the headwinds as we refer to the circumstances of the fourth quarter had to do with more than the situation with the tariffs on imports into China that to do, as mentioned in our prepared remarks, with one of our major applications for GPUs, suffering, setbacks that are dying to do with China. And more generally with some level of softness in data center infrastructure spending. We believe based on a variety of inputs we've received that, that softness, is very temporary these new programs that are starting to ramp in the middle of the year. And going back to your fundamental question of how do we ensure that we can deliver growth in, good times, but also in also good times, obviously not necessarily at the same level. The answer to that question is very simple by adding kick ass products that beat the competition, that.
And that's what we're doing in point of load applications. That's what we're doing in supercomputing applications. And before too long, that's what we're going to be doing in front end applications. It's the reality that essentially every, take as an example, the artificial intelligence chip market, right? So that's the market we stand with value at around $1,000,000,000.
Everybody of significance in that market has come to Vicor for their solution. We're the only game in town. So that's how we ensure long term growth. And that's one market. The other opportunities in other markets that we're also pursuing because we believe in a differentiated business model, one that is now predicated on one particular end market.
So we're building, presence in automotive. We're building presence in other kinds of applications before too long, as mentioned earlier, we're going to have a very strong presence with front ends are going to complement our superior point or load capability.
Joe, follow-up, Matthew?
No, thank you so much.
Thank you.
Thank you. Your next call. Your next question comes from the line of John Dillon. Please go ahead, John.
Hi, Patricio. You mentioned $100,000,000 bookings level. I wasn't quite sure. Are you talking about the 2nd or 3rd or 4th quarter for that level?
4th quarter.
Okay. So it'll ramp, from where we are. So you expect 15% increase in bookings up in the 1st quarter and then it'll ramp up to the $100,000,000 level. Is that correct?
Yes, that's the expectation at this point.
And the 15% increase in bookings, I guess you're pretty far into the quarter. So I would imagine you have a pretty good feel for that. Is that a pretty good
Well, the quarter is not over, as we see in the 4th quarter, surprises can happen and do happen. But that's the forecast. And I get confirmation this morning that that forecast is still good as of today.
Good. Okay. On your vertical power delivery products, this kind of brings me back to the IBM days. I believe on the start of the, the the BI Chips. You provided the, the power supply running underneath the processor of the IBM computer.
And if I remember correctly, you actually enabled IBM to have a higher performance computer back then. Is that correct?
Yes. But that's really not vertical power delivery. As enabled with the technology that for which we recently got initial design wins. The problem we're solving with vertical power delivery is quite a bit more complex that in the early going of factorized power, it involves a changing of gears, so to speak, which is necessary in order to adapt from the sale pitch else, which is around 3 millimeters or 3 millimeters to the pitch within an XPU or the power feed within an XPU, which In one instance, it's 1 millimeter pitch. The instance is down to 0.45 millimeter pitch.
That change of pitch presents certain challenges, also not to get too technical, but just to give you a flavor of another challenge, The area under the XPU has historically been consumed by 100 of bypass capacitors that are required in order to ensure that as the XPU undergoes rapid changes in current row, which now are getting to literally a 1000 amp change in on timescales of now seconds, that that XPU voltage node is kept within very tight, very tight control range. So the bank of capacitors as historically populated, the area under DXPU and precluded power converters, current multipliers in particular from occupying the same area. We've also solved that problem. So, fundamentally, with the GEA GCM or GCM, we're enabling a complete solution that delivers, cards in potentially the thousands of lumpiers with very high bandwidth, in effect occupying the same space that historically has been taken up by bypass capacitors.
Now you're obviously, like you mentioned before, you're saving a lot of power by doing this by a factor of 10, I think, or there's resistance by a factor of 10.
Yes. So interconnect resistance, in a lot of power delivery application would typically be let's say, 70 micro ohms. That may sound like a very small number, but when you're passing through that, 1000 amps, that's, 70 watts worth of heat, which is a light bulb in it of itself. With vertical power delivery, that 70 micro ohms gets turned in to eight microns. So you're essentially cutting that power loss by an order of magnitude.
And therein, lie, 60, 70 watts of peak power dissipation savings that can be, in effect, utilized to not just provide more power to the XPU, but also to provide more control power to the XPU videos as voltage nodes on 7 nanometer technology get to lower, lower levels. We have applications now down to 0.4 volts. So the process is run nearly sub threshold that 0.4 volts. That's a very low voltage and literally millivols make a difference with respect to, performance and operations And so the headroom is allowed in the power delivery path for, drops associated with car delivery. Gets further and further reduced.
And that's why vertical power delivery is an enabling technology that ultimately results in higher performance, AI Processors, and needs to say, high performance is what this all about. And that's why, you name it, every one of the major contenders for opportunity in this space comes to the place that has the technology.
I mean, that's incredible. I mean, you're saving 60 or 70 watts you multiply that by the number of processors in a supercomputer data center, you're talking about some serious power savings.
Yeah. Now typically those are peak power draws they're not necessarily the average power draws, but the system has got to operate also under instantaneous peak power draws. So These are complex issues and it's easy to serialize them, but I think it's fair to say that we've taken a very holistic view of the entire problem. At the point of load and, installed it. And the solution comes back to 48 volts.
Some people say 48 volts is going to take a long time to take root in the asset space. Absolutely not. It's 48 volts is being brought about, not just because of the benefits of more efficient power delivery. I think ultimately, the real driver is enabling the level of a high performance that makes the solutions our customer solutions more competitive relative to their own competition. That's what will drive 48 Volt adoption.
In datacenters. And ultimately, the automotive market is also a very powerful driver and that's a market in which conversion to 48 volt is happening. There's no question about it.
Along the same lines of the vertical, don't you also you've you've said many times you free up pins, and doesn't that also enable a higher performance computer because you have more IO. And can't you place supporting chips closer to the processor so that, time the electrons go from the processor to the memory or with or another processor or shorter. So doesn't that also make a faster, higher performance computer?
Yes. Because generally speaking, with the lateral power delivery, you are confining the address for the signal IOs that to your point, provide the needed bandwidth for communication with other devices. So by going to the back and obviously going there requires solving all the problems standing the way of vertical power delivery. By going to the back, essentially the entire perimeter for the XPU is freed up. And we have applications where these capabilities are going to be taken to new orders of magnitude of performance.
Literally going to blow away the level of performance of the best GPU of today.
That's the point that I'm excited about because I don't think the average person or I don't think the average engineer understands that a power supply can be enabling technology And to me, that's what I get really excited about. So I've taken up a lot of time, so I'm going to get back in the queue. Thank you
very much. Any other question?
Yes. The next question is coming from the line of Alan Hicks. Please go ahead, sir. Your line is open now.
Yeah, good afternoon. You've been talking about, opportunity in ASICs at high amperage ASICs. What kind of opportunity do you have there and what kind of applications are those?
So we're not going to name customers. As I suggested earlier, we have essentially every I current application that we know of and that has generally been identified. So I So for instance, the recent balance story on AI, projecting growth at the 50% per year level over the next 5 years, to, I think, 34 $1,000,000,000 market by 5 years from now. This
lot of
names in that story, we're doing business with virtually every one of them. And And that's because, again, in these applications, what's needed is a level of current delivery and performance that cannot be supported otherwise. What has happened over the last few years is something that I think many of us would have had a hard time predicting. It wasn't that long ago that an Intel Processor could be fed with, less than 100 amps and could have provided all the performance that applications required. It's only in a matter of few years we've gone from less than 100 amps to a few 100 amps to 500,600 amps with peaks over 1000 amps to our highest current application as of a few weeks ago is going to be pretty close to 1000 amps and this coming in 2020.
So, what is this escalation is clearly driven by a need and that is the need to suggest in the prepared remarks, fuel these devices that are running on fire and fire lithography with very, very large currents of lower and lower voltages. And that is a compounded problem because as suggested earlier. By going to lower voltage, you run out of headroom for a voltage error. You're enabling more current delivery with acceptable levels of power dissipation. Obviously, if you cut the voltage enough, you can feed it with double the current for the same power consumption within the ASIC.
But ultimately, all these applications are driven not by considerations of power And fundamentally, every competitor is looking to feed their with the most car that they can deliver and permanently managed. Now thermal management is very capable particularly with liquid cooling. So the headroom that is made possible by advanced thermal management techniques has allowed this exponential rise in current consumption, which ultimately a proxy for computing capacity.
So is this the main opportunity in the AI area or supercomputing, or and how does it compare to the to the GPU opportunity?
Well, it's in both. I think we are in all the above. We're going to be in all the above.
So so it's a it's a as big an opportunity as, GPUs or CPUs? Or
well, they will have a common denominator need, which we are I believe uniquely equipped to address. Their common denominator need is voltage delivery at less than 1 volt, typically 0.8 point 7.6.5volts. Our current, as suggested earlier, are rising. The reason by an order of magnitude in the last few years. And for the time being, there is no ending site as long as that can be terminally managed.
So with advanced term management techniques, you can easily get to applications that may consume in one device, literally a few tens of 1000 ampers. And there's a value proposition there. It's a supercomputer in a very small space. That can do all kinds of wonderful things.
And well, the supercomputer market in general, I know you get they're huge projects. Do you have do you expect any wins this year?
We are engaged again, with every significant competitor, they're all coming to Viger for good reason. Which is we can deliver a level of power density current capability, power distribution efficiency that nobody else can. And this is enabling as suggested answered an earlier question, it's inevitable in technology. We're not a supplier of commodity solution. We are a partner that enables a much higher level performance that can be otherwise achieved.
I know you had the when a year or so ago, it was about an $8,000,000 order, if I remember right, what how big are these orders big for us? Big super, super computer?
So there are many opportunities that are in the tens of millions of dollars per year range.
Okay. Okay. Thank you very much.
The next question is coming from the line of James Liberman. Thank you and greetings. Can you give any further color or timing on automotive adoption And could the adoption, happen independent of the timing of, autonomous vehicle roll out? In other words, would it just happen because you've got multiple supercomputers on board more and more cars? Is that going to be as equally a motivating factor?
So we've been working with the company in that space, which we believe, as the highest, the most capable autonomous driving system level 5 driving system. And scale up of that should happen, independently of other initiatives that we've been pursuing, of late with the hiring of ADP for global automotive initiatives. But before too long, that opportunity is going to be complemented, the by a number of related to autonomous driving, they are related to the electrification of, vehicles, the 48 volt system, IB systems, that have, you know, dual 1240 8 volt, buses, a conversion between those passes, 48 12 to 48. There is a plethora of, requirements and opportunities were very high density, lightweight, efficiency, modularity, scalability, cost effectiveness, play a role with respect to creating opportunity. You know, our team has been visiting OEMs in Japan, in Europe, in the U.
S. And the universal response from, all of these companies is they are blown away the capability of our technology. They actually want us to be a Tier 1 to them with respect to, our capabilities. And we're pursuing a combination of initiatives to make that happen as quickly as possible. Worth of caution here.
Nothing moves, very quickly in automotive. And that's been together to some degree, in today's automotive industry, which, as we know, is, challenged to adapt to changing is changing competitive landscape. So it's not, it's not moving at the glacial speed of, earlier times, but it is still for a variety of reasons, you know, progressing in terms of the cycle of initial evaluation, designing, validation, and Skype for production. It's still moving at a slower pace than, some of the market opportunities that we referenced earlier, which can turn from planting a seed to volume production in 9 months or a year. I think the time scale that we should all be thinking of with respect to our presence in automotive in a meaningful way, at the scale comparable to some of these other markets, that timescale is beyond the 3, 4 years.
It's not shortened that.
Thank you very much. That's quite helpful.
Thank you. If there's one more question.
Yes, there's a question left and it is coming from the line of John Dillon. Please go ahead. Your line is open.
Hi, Patricia. Can you give us a little more color on the front end products? In particular, when do you think you'll start seeing a revenue pickup on those and any kind of significant revenue from those products?
So we're seeing more instances of, combined opportunities with point to load So a recent example of a customer where
we've
been working for a very advanced point of solution, wanting to incorporate a RF front end. With the RFMs as we currently have it, we have a solution that is based on earlier generation control, we are progressing rapidly to what we call 4G control. We're rolling out 4G in a variety of products, including a more advanced RFM that will be even denser and even more cost effective. So we see this front end opportunities beginning to play out in scale over the next year. Initially with the existing RFM, which is based on older generation control.
But once we introduce 4gbase solutions, we see because of their cost attributes, and even high performance attributes, we see opportunities for bigger uptake.
When you say over the next year, I mean, like, for example, when do you expect to get, like, maybe, let's say, 10 $1,000,000 in revenue, would that be a year from today or could that be 6 months from today or?
I think it would be closer to a year from today.
In like 6 months, could you expect a couple $1,000,000 or $5,000,000 or?
Well, I think it's on this calendar. It doesn't really move the needle. So I think the way we should be thinking about this, to avoid losing the forest for the trees, is what moves the needle in the short term is broad penetration of a applications, supercomputing applications that's moving the needle. I think front ends, complementing those points of load applications, will provide, another wave of opportunities because as we discussed in the past, that can literally, at every one account, in every application, it double the revenue opportunity. And then as I suggested earlier, the automotive initiative that's even further into the future.
But, so in the short term, we're working, our major opportunities, which are still in the center space. There's still with AI, GPUs, XPUs, TPUs of various kinds, those are the near term opportunities.
Okay. Okay. Great. And, the the MBMs, what do you think you'll start seeing some kind of significant revenue from those?
We have a lot of design wins. By the way, automotive is another opportunity for the NBM, but we have quite a few wins in, a variety of other end applications. I mean, that too is a device. We're now upgrading to 4G and that will make it even more efficient and more capable and even more cost effective. So we're moving across all of these opportunities.
From a product development perspective, bringing about a next generation control technology that provides for, more flexibility, more performance, lower cost, lower part count, And we see these initiatives as bearing fruit in the order that I've outlined a little while ago.
So it would be similar to the front end type stuff, maybe hit a $10,000,000 run-in a year from now or so?
I think that the opportunity for MBMs is quite significant. It's another example of product capability without equal. You know, it's far smaller than anything else out there and there'd be many tries including some failed tries at that, not from us.
Jamie, you mentioned that, if the tariff stuff goes away, you might see an acceleration of bookings. Does that mean we could possibly and I don't know you're not going to commit to this, but we could possibly see numbers better than we talked about earlier if the tariffs go away.
Let's not speculate about what, what might happen. If the tires go away, in terms of impact on near term bookings. I don't know what the lag would be, but I don't think there would be a large lag. And certainly, this would be a very beneficial development in terms of, our penetration of the Chinese market which is a very substantial market. Thank you.
We'll be talking to you in a few months.